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The skinny on levelized-tuition plans

If college freshmen think coming up with the cash to pay for tuition in the first year is hard, they're in for a surprise come senior year. Tuition inflation, a factor many families do not budget for when saving for college, can make tuition prices jump as much as 13 percent without warning from one year to the next.

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To help parents plan for the rising costs of higher education, schools across the country are adopting levelized-tuition programs, also called fixed-rate tuition plans, tuition locks or tuition-guarantee programs, that guarantee that the price you pay for freshman year will be the same amount you fork over every year thereafter.

While paying one price for all four years may sound like a sweet deal, critics warn students to read the fine print and ask the right questions before signing on the dotted line.

And stand warned that the tuition rate during freshman year will likely be quite a bit steeper than the going rate. Here's the lowdown on how levelized-tuition programs work and how to decide if they're right for you.

The fixed-rate difference
According to Finaid.org, students can expect to pay an average of 8 percent in tuition inflation every year. Over four years, that means those attending public schools (where the current average tuition price nationwide is $5,491) can expect tuition for their senior years to be roughly $1,425 more than what they'd paid in their freshman years. Those attending private schools (where the average tuition price is $21,235) can expect their tuition bills to be a whopping $26,751 by senior year.

While it might be easy for families to plan for a set tuition increase each year, the actual rate of tuition inflation can change dramatically from year to year. This leaves families without the ability to financially plan for the college road ahead.

"We don't set inflation rates until July, which is a month before classes start. That's a bad time to tell parents 'Whoops, your tuition has just gone up $40 or $50 a credit hour,'" says Diane Fleming, associate director for scholarships and financial aid for Central Michigan University in Mount Pleasant, Mich. "With our tuition-guarantee program, parents know what rate they'll be getting for the next four or five years."

While most institutions give students and parents more than a month to plan for significant increases, many public schools are dependent on funding from the state and oftentimes can't finalize their tuition prices until after state budgeting decisions have been made in the spring. That gives students and parents about three to four months to come up with the cash to cover a steep tuition hike.

One solution? A one-price-fits-all plan. Most levelized-tuition programs, including the one at Central Michigan University, operate on an averaging system. While freshmen pay a significantly higher level of tuition to take inflation into account, by senior year they're likely paying less than other students at the school. At CMU, for example, tuition rates are jacked up 19.9 percent in freshman year, but over a four-year period the assumed inflation rate is 9 percent.

 
 
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